When I had a chance to ask Barbara Roper, director of Investor Protection for the Consumer Federation of America, questions for a story, I had a feeling she’d come out in favor of adopting a universal fiduciary standard. What surprised me, though, was the frankness of some of her answers (see “Exclusive Interview with CFA’s Barbara Roper: Why a Fiduciary Standard Helps All Investors and 401k Plan Sponsors,” FiduciaryNews.com, May 21, 2013). Whether is pinpointing the blame for the fiduciary mess directly on the SEC to explaining why she has less fear of regulator inaction than improper action on the part of regulators.
But what I found most compelling, and worthy of thought by all those fiduciary advocates out there, was her belief we should do away with the term “fiduciary duty.” Unless and until we do so, despite her feeling investors are better off using a fiduciary advisor, she doesn’t think fiduciary advisors will successfully market themselves.
What term does she think should replace “fiduciary duty”? While it doesn’t fully reflect the comprehensive nature of fiduciary duty, she says investors will respond more favorably to the phrase “acting in the best interest of the client.” By odd coincidence, given last week’s article on what “Star Trek” teaches us about fiduciary, there’s a scene in the current movie that exemplifies this. Captain Kirk, acting in his fiduciary capacity on behalf of his ship and crew, turns the ship over to Mr. Spock. Kirk didn’t say, “Spock, I’m doing this because it’s my fiduciary duty.” No, he told Spock his decision reflects “the best interests of the ship and crew.”
If Captain Kirk is wise enough to know how hard it is for people to understand the concept of “fiduciary,” why can’t fiduciary advisors? Roper warns us that the regular investor may actually think the “suitability standard” is a higher standard than the “fiduciary standard.” As a result, attempts to convincingly sell the value of “fiduciary” will only continue to end in heartache for otherwise sincere advisors.
This is a reality we must recognize. If “fiduciary” were a compelling sales point, we wouldn’t be having this discussion right now. We wouldn’t have to worry about which direction the regulators will blow. Indeed, brokers would already be trumpeting how they are the best fiduciaries instead of fighting the adoption of a uniform fiduciary standard. No, the truth is the common investor, despite our greater knowledge this isn’t true, continues to view the broker argument with more credibility. In other words, they have demonstrated they are more than willing to suspend their disbelief that they are actually paying any fees. We know they are. They prefer to live in a world of denial, a denial supported by the continuing sales pitch they’ve received.
Roper isn’t alone in her position to rid the world of the word “fiduciary.” Knut Rostad has been telling me for a long time now we should replace the jargon-ish technical (actually, legal) word with a more operational definition. Rather than “best interests,” which remains subjective, he prefers to employ the phrase: conflict-of-interest. Rostad’s expression has the advantage being objectively measurable. Roper gets to the same idea by suggesting investors have specific pointed questions to potential advisers. In fact, we can easily come up with a checklist of conflicts-of-interest investors can avoid.
Perhaps there are better words we can use. The point is, we must face the facts. The time is now to consider what will replace “fiduciary.”